by Y Combinator8/16/2017
During the Female Founders Conference Kat Manalac invited three YC founders on stage to share their experiences of fundraising. The founders are Elizabeth Iorns of Science Exchange, Vanessa Torrivilla of Goldbely, and Erica Jensen of The Flex Company.
Kat Manalac – Hi. I’m Kat, and I’m really excited to introduce you to three YC alumni founders. This is actually going to dovetail really nicely with what Kristy and Aileen were just talking about, because we’re going to be talking a little bit about fundraising. Because we all know that that’s a big challenge. Then, hopefully, we can get to a couple questions beyond that. But these three women are running companies that cover a wide range of categories. We have something from the sciences, marketplace, feminine hygiene. We also have companies here at different stages. So Erika from Flex just went through YC in the summer, last summer and raised a seed. Elizabeth went through in Summer 2011 and she just announced her Series C raise today. So congratulations.
Elizabeth Iorns – Thanks.
Kat Manalac – That’s huge news. Vanessa with Goldbely went through YC in Winter 2013 and raised a Series A last year. So we have a wide range of categories. We have a wide range of kind of stages. So I’m really excited for you all to kind of tell your story. So can you each introduce yourselves? Talk a little bit about what your company does and where you’re at today.
Elizabeth Iorns – I’m Elizabeth Ioms. I am the Founder and CEO of Science Exchange. Science Exchange is a marketplace for outsourced research and development. We work with some of the world’s largest pharmaceutical companies, as well as agriscience, cosmetics, aerospace, and food science companies to help them manage their outsourced research and development. We have just raised our Series C. We have been in operation for six years, and through that process have built the company now up to a global stage. So it’s very exciting.
Vanessa Torrivilla – My name is Vanessa Torrivilla, and I am the Co-Founder and Chief Creative Officer of Goldbely. As Kat said, we did Winter 2013. We are a marketplace where you can discover the greatest, most iconic regional foods from everywhere in the country shipped to your door. Through us, you can experience places like Momofuku Milk Bar and Magnolia Bakery in New York, Salt Lick BBQ in Texas, and we ship it to you, no matter where you’re located. We recently raised $10 million, a Series A. Yeah. We’re doing pretty well right now.
Erika Jensen – I’m Erika. I’m the Co-Founder of the Flex Company. Like Kat said, we went through YC actually twice last year, and we closed a $4 million seed round in September. Our product is called “Flex”. It’s a new menstrual product that replaces tampons, pads, and menstrual cups. You can wear it for 12 hours. It’s disposable. You can have mess-free period sex while wearing it. We started shipping to customers in October, and we’re currently on a multimillion-dollar run rate.
Kat Manalac – Awesome. So I wanted to do one really quick survey in the audience. How many of you have raised money? Okay. How many of you raised a seed? Series A? Okay. Series B? Okay. So now, we know where we’re at. Okay. So on a scale from 1 to 10, where 1 is easy-peasy and 10 is the hardest thing you’ve ever had to do as founders, how hard do you think, say, raising your seed was on that scale?
Elizabeth Iorns – For us, it was probably a four.
Kat Manalac – So not the hardest.
Elizabeth Iorns – No. Definitely not the hardest.
Vanessa Torrivilla – I feel like it was more like a nine, raising a seed. Because fundraising, it’s not something that you want to do. You didn’t start a company to fundraise. So I would give it like a nine.
Erika Jensen – I think the first check is the hardest check you’re ever going to close, and that was for sure a really solid nine. Everything beyond that was kind of a four.
Kat Manalac – How far along were your products when you first raised money.
Erika Jensen – Well, we manufacture a Type II medical device that’s regulated by the FDA. So we weren’t very far at all. Because as you can imagine, that costs a lot of money. So we were really an idea and a design, and an early prototype, and a founding team.
Vanessa Torrivilla – We had customers and we were demonstrating growth, and we were generating some good revenues.
Elizabeth Iorns – We were super early, so our first money in was Y Combinator, actually, and we had nothing. So we didn’t have even a website. Then, after Y Combinator, we’d built a website and built initial customers, and had some revenue. At that stage was when we raised our angel round.
Kat Manalac – You mentioned that getting that first check was really hard. How many investors do you have to do talk to? Or what was that experience like before you closed? Erika?
Erika Jensen – Talked to countless investors. For us, fundraising is a lot like hiring. Like you really want to align yourself with people that you want to continue working with and that you genuinely like. I think Aileen said, “Don’t work with assholes.” Right? So it was important to find people in the beginning who not only believed in us, but really believed in the product and believed in the mission that the product would achieve.
Kat Manalac – How did you practice for those first investor meetings? What did practice look like?
Vanessa Torrivilla – I think for us, we got a lot of practice during YC. We were pitching to our peers. We pitched to P.G. He gave us some amazing tips on some things that we should really put out front and center. So it was mostly talking to people who were going through similar fundraising instances that we really learned how to do it.
Kat Manalac – You tried to pitch to as many other funders who could give you feedback?
Vanessa Torrivilla – Yeah. We wanted to focus on things that people were reacting to and they were nodding to.
Kat Manalac – You wanted them to respond with a question?
Vanessa Torrivilla – Yes.
Kat Manalac – Not just glazed over?
Vanessa Torrivilla – Yeah. If they looked confused, it was [inaudible 00:06:37] thing what we were saying.
Kat Manalac – What did your kind of practice process look like? So part of the challenge here for many of you is sort of selling this company to people. Often, a lot of investors are white men who aren’t necessarily your users. Right? Most investors aren’t scientists, or they’re not women who have periods. So how did you hone that messaging? How did you get to the right kind of message, that story to tell investors?
Elizabeth Iorns – I think the storytelling is really important, particularly, in the early phases. For us, I’m not sure that we were very good at it at the beginning. So definitely, for us, it was a journey, an evolution of trying to understand what would resonate with investors as an audience. What we ultimately came down to was really describing the business. So instead of being very focused on what’s most exciting to me, which is enabling breakthrough research, that was not… People got excited about it, but it wasn’t to them something that they really wanted to invest money in.
What really resonated with people was when they understood the market size and they understood that this was a new market that was wide open, where no software existed, and that there was a huge transactional cost that Science Exchange would eliminate. That they could really see that the economic benefit of Science Exchange was so compelling that this would be something that could create a truly billion-dollar business. So that’s where we were able to really start to raise significant financing.
Kat Manalac – Did it take you a few tries? So did you pitch to a few investors who you were investing your… As a scientist, with someone from your background, the things that excite you, as you said, aren’t the things that excite investors.
Elizabeth Iorns – Yeah.
Kat Manalac – Did you sort of have a couple people to practice on, or did you make a few mistakes before you got to the right message?
Elizabeth Iorns – Made lots of mistakes for sure. I think for us, we tried to tell some interesting stories about use cases that had happened on Science Exchange. Like one of our favorite ones was Nasa used Science Exchange to develop the blackest material ever measured. We were like, “That is so cool. People should really care about this.” It’s a great story, but it’s not a great investor story. So not clearly describing why that could create a valuable business opportunity was definitely a mistake, and we sort of evolved from that and actually developed much more of an economic-based pitch, which resonated much more strongly.
Kat Manalac – Erika, you’re going to have to tell us how you pitched a period product. How did you get comfortable doing that even?
Erika Jensen – I don’t know if I am comfortable here. It was just something that we really believed in, and if we didn’t talk about it with everyone, we knew that we wouldn’t see it come to life, so that it was something that we had to talk about with everyone. Like you said, a lot of the investors that we were pitching don’t have vaginas, don’t have periods, and are frankly afraid of both. So when you go in and you’re talking about both things simultaneously, they just don’t understand it. So we really focused on… The best advice I feel like I can give is focus on building a really incredible business that speaks for itself, and that they can’t avoid. At that point, the product kind of becomes irrelevant.
I can’t even tell you guys how many times I’ve heard, “Let me ask my wife,” or, “Can you send a box to my assistant? I’ll see what she thinks.” Those aren’t people that you want to work with anyways. So take that as, “I’m not interested,” and move on and find someone that is.
Kat Manalac – Vanessa, was every investor just like, “Food?”
Vanessa Torrivilla – No. Actually, at the time that we were pitching, the hyper-local delivery space was pretty crowded. So we really wanted to make it very clear that you were getting specialty things from someplace else. So what we did is that we made sure that we had food present to illustrate what we were trying to do. So we would bring a key lime pie from Key West. We would also do a lot of research about the investor that we were talking to. We’d find out where they went to school or where they were from, and we made sure to have something there that maybe they had a nostalgic connection to.
Kat Manalac – Oh, that’s a good hack.
Vanessa Torrivilla – It was really cool, because by the time they arrived at the meeting and sat down, they saw the food item and they understood what we were trying to do. So we didn’t have to go through all of this explaining anymore. Then, the other thing that we used to do is that then we’d follow up with another food item delivered to them. So food, man. Food sells.
Kat Manalac – So when you are trying to figure out, you’re getting ready to pitch to investors for the first time, how did you know what metrics they wanted to see? How did you figure that out?
Erika Jensen – We just asked. Like if Sequoia is your super-hot dreamboat, don’t set that up as your first meeting. Find an angel that you’re also interested in, but it’s not your number one pick and start practicing there. Ask them like, “What metrics do you need to see in a company at my stage, and what would you be looking for?” They’ll tell you.
Vanessa Torrivilla – I think in our instance, our seed was raised on vision. We were talking about our vision, our experience, the team, the market size. So it was less about what our metrics were, and it’s more about, “How are you guys going to win and why are you guys going to win?” I think that by the time we went to raise our Series A, our seed investors were really key in giving us guidance on what were the KPIs that were really relevant, that would make investors interested in us. So it was through our seed investors that we learned what metrics to really put front and center.
Elizabeth Iorns – I think related to that, those KPIs are going to be critical for your business anyway. So really understanding what those KPIs are based on the business type, and then tracking those rigorously as you’re growing the company. Then, those will give you sort of benchmarks for where you need to be when you’re going to each raise a round of fundraising.
Kat Manalac – How has it changed? As you went through a seed, an A, a B, and now a C, how has it changed throughout that process?
Elizabeth Iorns – For me, the industry has also changed a lot in that time as well. So I think when we started Science Exchange in 2011, it was right at that kind of bubble when people were starting to think about becoming entrepreneurs. But definitely not at the level of interested that there is now, that you see the huge number of people in the audience today. So that’s amazing to see so many people wanting to become entrepreneurs. But it also creates a different level of expectation around where you should be as a company at each round of financing. So for us, when we raised our Series A, our Series A was like $3 million or $4 million, and that was great. That was totally normal back then. Now, I think the median is close to $10 million.
So it’s a very different type of expectation around where you should be, what stage of company you should be when you’re raising each of these rounds. Certainly, for us, we saw that same focus on vision, on market opportunity, and on team being very important in the early stages, and then much more focus on, “Okay. How are you showing true product/market fit?” In our Series C, that was very critical that you had very large enterprise clients that were actually using this platform extensively, and that you had genuinely proved out the business model and the cost of acquisition, and all of those components. That investing this money would actually, immediately, go into creating an ROI for those investors.
Kat Manalac – Right. So as you’ve all gone through the fundraising process, we’ve seen the numbers. Not a huge percentage of women get funded. Do you think that at any point in the process you faced specific challenges because you’re women?
Erika Jensen – Absolutely. We face unique challenges being women. I think I really struggle with this question, because raising money is hard, like hard stock.
Erika Jensen – It is hard for anyone. You don’t want to go into a negotiation or into a meeting thinking like, “Oh, this is going to be harder for me, because I’m a woman,” because you’re giving that person the upper hand. So it’s not to say that it’s not happening. But it’s like, how do you not think about that, so that you can go into that meeting and you can actually be the one who is changing that percentage or that statistic?
Vanessa Torrivilla – It’s a little bit hard for me to answer that question, because my co-founder, he was my boyfriend. Now, he’s my husband. So I just feel like, for us, is as long as we’re focusing on growth and we’re demonstrating product/market fit, that we’re going to do well. I didn’t feel like my gender had anything to do with where we are today.
Elizabeth Iorns – I think as you get into the later stages of financing, you see perhaps less, because there is much more focus on metrics. So being able to quantitatively show that your business is actually at a point where it deserves to raise a certain amount of financing kind of removes an element of bias, even if it’s unconscious. So my suspicion is that those earliest rounds, the angel rounds, are probably where it’s most difficult and where you might face some bias. I think we were very fortunate. I also have a co-founder who’s a man. I don’t know if that helped us or not. But I certainly think that if you can push through and get that initial funding, then you start to get traction. That traction actually trumps any kind of weird gender issues.
Kat Manalac – I’ve had a lot of conversations and it seems like getting those first checks are the hardest for women. Also, that’s probably the most vulnerable. So for things that happen, it’s usually at that stage before you already have a network of investors who kind of can help you through the later stages of the process. So for folks that are maybe raising their first, their seed, their A, do you have advice? If someone were to come to you and say, “Hey, can you help me? I’m pitching investors next week,” what one or two things would you want to impart to them?
Vanessa Torrivilla – I think that, about a Series A, what we did differently was that we prepared much better for our Series A than we did for our seed. We made sure that we had our financial model pretty ready to go. All of our data was ready. All of our KPIs were on display. We made sure to study up on all the key metrics that investors at a Series A level would be interested in. So by the time we had our meetings, we already had all of the information that they were going to ask. We weren’t scrambling to… We weren’t having different conversations at different times. We were having the same conversations with everyone, showing everyone the same information. We just studied up and prepared before we had our first Series A meeting.
Kat Manalac – So that echoes something that Aileen was saying. You just have to know those numbers cold, by heart.
Vanessa Torrivilla – Yeah. It’s not just your numbers. By the Series A, you should also know who you want to talk to. Most of the time, you’re going to start talking to people that have already invested in you at the seed level, or you’re going to reach out to firms that you know can help you get to the next stage. So you’re going to have to do a lot more preparing before doing a Series A than you would a seed.
Erika Jensen – I agree. I mean, even at the seed stage, I think that being prepared is so important. There’s so much research that you can do. I mean, all of you in this room, there are so many people you can talk to about what has their experience been like. “What are the averages? What should I be looking for?” Go talk to other investors. Like I said, ask them what they’re looking for and put that together for the people that you really, really want on your cap table. [inaudible 00:19:29]
Kat Manalac – How do you identify those people that you want to talk to? So how do you figure out who might be interested in funding a feminine care product?
Erika Jensen – Well, there aren’t many that fund feminine care products. But look for companies that are, if not in your category, similar to what you’re trying to achieve. So we have a feminine hygiene product, but we’re also an e-commerce company. So what investors have a really strong presence in e-commerce? What investors have invested in female founders? Stuff like that.
Vanessa Torrivilla – We were looking for investors that had expertise in consumer brands and marketplaces. So we did a lot of research about who could really give us some really great advice.
Kat Manalac – Where do you go? Is it like you just go to CrunchBase or AngelList?
Vanessa Torrivilla – Yeah. You literally stalk the investor. You look at their LinkedIn.
Kat Manalac – You look at their Twitter feed.
Vanessa Torrivilla – You see what boards they’re on. Yeah. I mean, if you’re a part of the startup community, you already know what kind of firms focus on different industries.
Kat Manalac – How much did fellow founders kind of help you out? Like did folks offer to introduce you to their investors? Or they said, “Hey, I know someone.” Did that ever work, reaching out to folks in your community?
Vanessa Torrivilla – One thing that we’ve always done is if we needed an intro to an investor, we would either reach out to a YC partner, or to any of our peers that maybe had some kind of connection. Like through LinkedIn, you can figure out who’s connected to who. So we would just ask for personal intros.
Kat Manalac – How did you divide responsibility on your team? So as a lot of you know, when you fundraise, it sort of takes so much of your time and focus. So how did you keep the company running while you were out there pitching investors? What did that breakdown look like?
Elizabeth Iorns – That’s definitely very challenging at the earlier stages. Again, I think that’s something we’re minimizing the time in which your actually fundraising. Being very focused about when you’re fundraising and when you’re not fundraising is very important, because you have to have really strong metrics going into the fundraise. Then, if it’s just three co-founders and two of you are fundraising, you’re going to have a dip in your metrics, because you’re doing nothing else except fundraising. So that’s very challenging. I think once you get beyond that initial phase of only having a few people in the company, hopefully, you’re at a point where the company should continue to operate more or less seamlessly without you being in the office every day. That’s a lot easier. So definitely, our Series C was so much easier from that regard. But I think it would be great to hear how you guys handled that.
Vanessa Torrivilla – For our seed round, everything slowed down. Our entire team was focused on somehow helping raise the round. But by the time we did the Series A, our CEO, Joe, he basically did the round as I focused on operations. I made sure that we were still running and that we were still growing, that we were sticking to our goals and our metrics month to month. So we could keep making money.
Kat Manalac – So the vast majority of running the company was up to you for a while?
Vanessa Torrivilla – Yes.
Kat Manalac – How long did it take?
Vanessa Torrivilla – We did it pretty quickly. The reason we did it pretty quickly is because we had gotten profitable before we went out for a Series A, which I forgot to mention. That also helps speed up the process. If you’ve already worked out your unit economics and you’ve become profitable, then you have a little bit more leverage to have, I feel like, a faster fundraise process. So probably, I would say just a couple months. Yeah. But I was basically involved in the day to day for our product and our marketing, and BD, as he was focusing on talking to investors.
Kat Manalac – Erika?
Erika Jensen – Yeah. Similar for us. We have three co-founders. Our CEO, Lauren, really focused on fundraising. We always say I kind of stayed home and made sure that the kids were still growing. Which meant that keeping the company running and keeping the traction that we were showing investors, making sure that it was continuing.
Kat Manalac – If you could go back in time and give yourself a piece of advice to when you were first starting the company, what would you tell yourself? It doesn’t have to be about fundraising. Just generally.
Vanessa Torrivilla – I think a lesson that I’ve learned being a founder is when you start your company, you’re pretty obsessed. You put your everything and your all into your work, into your product, into what you’re trying to build, and you kind of lose yourself. You feel that if you work 24/7, you’re going to be better and you’re going to help your company take off. But what you don’t realize is that you can burn out if you’re just working 24/7. If you leave work and go home, and continue to work, you’re not going to make better decisions for your company. It’s actually going to slow you down. So it took me a couple of years to figure out how to have a good life and work balance.
Erika Jensen – I think I had no idea how hard being a founder was going to be. I wish I would have met more founders in the beginning to have talked to about it and learned from them, and just be able to bitch about everything that you have to go through, because it’s hard. It’s really hard.
Kat Manalac – I hope you all use each other.
Erika Jensen – Yeah. I do.
Elizabeth Iorns – Yeah. I definitely think that learning process of trying to get advice earlier, trying to not be afraid to sort of talk about the challenges you’re facing. Everyone is always crushing it and doing so well on the outside. At times, you feel like, “Well, maybe I’m not doing well enough,” and you don’t know who you can really talk to about it. I think the reality is everybody feels like that, and that if you’re just really honest about that, people will say, “Oh, yeah. You know what? I had the exact same thing, and I’m so worried about it as well.” You can realize that every single company is so messed up.
I remember Jessica talking about this at one of the Female Founders conferences, and I was like, “That’s really true.” I mean, you always think that everything that you’re doing is so much worse than everybody else. But the reality is everybody is just trying their best and creating these amazing companies in the process. But it’s not perfect. It’s not perfect for anybody along the way.
Kat Manalac – Cool. Thank you, guys, so much for taking the time.
Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200). The startups move to Silicon